Australia and the World Past and Present

Australia’s Future Fund is the country’s independent sovereign wealth fund.

It was set up in 2006 to provide for public servant superannuation liabilities.

It was tasked with achieving investment returns of CPI plus 4-5% per annum.

The Fund was the creation of former treasurer Peter Costello. Costello’s legacy to Australia has been immense. Not only did he balance Australia’s finances for a decade but he had the foresight to set up an institution that would help Australian to fund costs that we knew were coming down the track. In this way Costello was not only grappling with the economics and politics of his time. He had the ability to see what difficulties lay decades ahead and put in place an effective institution to deal with them.

Costello well knew that if the Fund was to create significant resources it would become a tempting honey pot to future politicians. Over time the danger is that people would forget the original aims of the Fund and attempt to change the way that they Fund operates in order to access the money within.

That is why the Fund has a Board of Guardians. The choice of wording here was intentional and telling. Costello knew what he was doing. Not only did he need to set up the Fund, but he needed to wrap it in barbed wire and place sentries on the towers.

The Fund had initial seed funding of $18 billion and also one third of the proceeds from the sale of Telstra (around 9 billion).

By 2019 the Future Fund was getting a return of around 10% every year and had $162.6 billion in assets.

It now has $230 billion worth of assets.

Up to now the Future Fund hasn’t had extra funding tipped into it nor has its assets been drawn down. Its growth has come from the returns on its initial seed funding.

As the years rolled on the idea of creating investment funds to deal with challenging social issues has gained traction.

In 2013 a Disability Care Australia Fund was born in order to help fund the National Disability Insurance Scheme (NDIS).

The fund had its first scare in 2007 when the new Labor government wanted to use some of its funds to pay for part of the National Broadband Network (NBN) rollout. However the Fund managed to fend off the move.

Importantly, board members are supposed to have had considerable experience in investment, risk management and corporate governance.

David Murray was the inaugural chair of the Future Fund. He served as Chair between 2006 and 2012. Murray had come from the business sector. He had been CEO of the Commonwealth Bank for 13 years.

He was succeeded by David Gonski. Gonski had been born in South Africa and had moved to Australia in the 1960s. Gonski had a two year stint at the Fund. Gonski is known as ‘Mr Networks’. He has previously served as senior advisor at Morgan Stanley, chair of Coca-cola Amatil and chair of ING. He also been chancellor of the University of New South Wales. He is probably most well known in Australia for his role in reviewing education funding for the federal government in 2011. The central premise of his ‘Gonski Report’ was that funding should be allocated on the basis of student need.

Peter Costello was acting chair of the Fund for a decade from 2014.

His successor, Greg Combet started as chair this year. Combet’s background is in the union movement and as a federal politician. He was Minister for Climate Change in the Gillard government.

This year the Australian treasurer, Jim Chalmers, proposed that the Fund invest in some specific policy areas – green energy and housing projects.

The treasurer tried to suggest that this would be a minor change to the way that the fund is administered. However this is hogwash. It would be raiding the piggy bank.

Costello has said that Chalmer’s proposal would be a ‘very bad’ idea and that the Future Fund was never intended to be a ‘political slush fund’.

Up to now there has largely been bipartisanship on the central premise that the body should be left alone and be independent.

David Murray has said that the treasurer’s proposed changes would change the original aim of the fund and it “undoes all of the work” of the fund to date.

If many of these projects in the renewable energy and housing space were as profitable as the treasurer seems to suggest, then it stands to reason that private capital would already making a bee line for these projects.

An incredible asset has been set up and has been functioning well since its inception. It was inevitable that at some stage it would become too attractive to some politicians and moves would be made to access its funds for an ever-wider array of purposes.

No, the Future Fund should be left in peace to get on with the great job that it has been doing. Hands off the cookie jar. Or perhaps I should say ‘Hands off the biscuit tin’.